text: This title shall be known, and may be cited, as the Educational Debt Collection Practices Act.

history: (History: Added by Stats. 2019, Ch. 518, Sec. 1. (AB 1313) Effective January 1, 2020.)

title: 1.6C.7. Educational Debt Collection Practices


kind: section

code: CIV

text:
The Legislature finds and declares all of the following:

(a) Schools and colleges have threatened to withhold transcripts from students as a debt collection tactic. The practice can cause severe hardship by preventing students from pursuing educational and career opportunities, and it is therefore unfair and contrary to public policy. Moreover, the practice is counterproductive as it may further delay the payment of the debt by creating obstacles to student employment.

(b) It is the purpose of this title to prohibit schools from interfering with student educational and career opportunity by the withholding of transcripts.

path: 1.6C.7. Educational Debt Collection Practices


text:
For purposes of this title, the following terms shall have the following meanings:

(a) “School” means any public or private postsecondary school, or any public or private entity, responsible for providing transcripts to current or former students of a school.

(b) “Debt” means any money, obligation, claim, or sum, due or owing, or alleged to be due or owing, from a student, but does not include the fee, if any, charged to all students for the actual costs of providing the transcripts.


text:
Notwithstanding any provision of law, a school shall not do any of the following:

(a) Refuse to provide a transcript for a current or former student on the grounds that the student owes a debt.

(b) Condition the provision of a transcript on the payment of a debt, other than a fee charged to provide the transcript.

(c) Charge a higher fee for obtaining a transcript, or provide less favorable treatment of a transcript request because a student owes a debt.

(d) Use transcript issuance as a tool for debt collection.


text: Any waiver of a provision of this title is contrary to public policy and is void and unenforceable.

history: (History: Added by Stats. 2024, Ch. 853, Sec. 13. (AB 3281) Effective January 1, 2025.)


text:
For purposes of this title, the following definitions apply:

(a) “Borrower” means either of the following:

(1) A person who has received or agreed to pay a student loan.

(2) A person who shares responsibility for repaying a student loan with a person described in paragraph (1).

(b) “Borrower with disabilities” means a borrower who a student loan servicer knows, or reasonably should know, is a person who has a disability, as defined in Section 54.

(c) “Borrower working in public service” means a borrower who a student loan servicer knows, or reasonably should know, is employed in a public service job, as defined in the Higher Education Act (20 U.S.C. Sec. 1087e(m)) and its implementing regulations.

(d) “Commissioner” means the Commissioner of Financial Protection and Innovation.

(e) “Department” means the Department of Financial Protection and Innovation.

(f) “Engage in the business” means, without limitation, servicing student loans.

(g) “In this state” means any activity of a person relating to servicing student loans that originates from this state and is directed to persons outside this state, that originates from outside this state and is directed to persons inside this state, or that originates inside this state and is directed to persons inside this state.

(h) “Licensee” means a person licensed pursuant to the Student Loan Servicing Act (Division 12.5 (commencing with Section 28100) of the Financial Code).

(i) “Military borrower” means any of the following:

(1) A borrower who is one of the following:

(A) A servicemember as defined in the Servicemember Civil Relief Act (50 U.S.C. Sec. 3911).

(B) Self-identifies as a service member when interacting with a student loan servicer.

(C) Is a service member as defined in Section 400 of the Military and Veterans Code.

(2) A borrower who is a veteran of a branch of the Armed Forces as defined in Section 101 of Title 38 of the United States Code.

(3) An authorized representative of a borrower described in paragraph (1) or (2).

(j) “Older borrower” means a borrower who a student loan servicer knows, or reasonably should know, is a senior citizen, as defined in Section 51.3.

(k) “Overpayment” means a payment on a student loan account in excess of the monthly amount due from a borrower on a student loan, also commonly referred to as a prepayment.

(l) “Partial payment” means a payment on a student loan account in an amount less than the current amount due from a borrower on the student loan account, also commonly referred to as an underpayment.

(m) “Person” means an individual, a corporation, a partnership, a limited liability company, an association, a trust, an unincorporated organization, a government, or a political subdivision of a government, and any other entity.

(n) “Qualified request” means any inbound telephone call, the subject of which cannot be resolved in a single phone call, made by a borrower to a student loan servicer in which either the borrower requests specific information from the student loan servicer or reports what the borrower believes to be an error regarding the borrower’s account.

(o) “Qualified written request” means a written correspondence made by a borrower, other than notice on a payment medium supplied by a student loan servicer, that is transmitted by mail, facsimile, or electronically through an email address or internet website designated by the student loan servicer to receive communications from a borrower that does all of the following:

(1) Enables the student loan servicer to identify the name and account of the borrower.

(2) Includes a statement of the reasons for the belief by the borrower, to the extent applicable, that the account is in error or that provides sufficient detail to the servicer regarding information sought by the borrower, such as requesting a complete payment history for the loan or the borrower’s account, a copy of the borrower’s student loan promissory note, or the contact information for the creditor to whom the borrower’s student loan is owed.

(p) “Servicing” means any of the following activities related to a student loan of a borrower:

(1) Performing both of the following:

(A) Receiving any scheduled periodic payments from a borrower or any notification that a borrower made a scheduled periodic payment.

(B) Applying payments to the borrower’s account pursuant to the terms of the student loan or the contract governing the servicing.

(2) During a period when no payment is required on a student loan, performing both of the following:

(A) Maintaining account records for the student loan.

(B) Communicating with the borrower regarding the student loan on behalf of the owner of the student loan promissory note.

(3) Interacting with a borrower related to that borrower’s student loan, with the goal of helping the borrower avoid default on their student loan or facilitating the activities described in paragraph (1) or (2).

(q) (1) “Student loan” means any loan made solely for use to finance a postsecondary education and costs of attendance at a postsecondary institution, including, but not limited to, tuition, fees, books and supplies, room and board, transportation, and miscellaneous personal expenses. A “student loan” includes a loan made to refinance a student loan.

(2) (A) A “student loan” shall not include an extension of credit under an open-end consumer credit plan, a reverse mortgage transaction, a residential mortgage transaction, or any other loan that is secured by real property or a dwelling.

(B) A “student loan” shall not include an extension of credit made by a postsecondary educational institution to a borrower if one of the following applies:

(i) The term of the extension of credit is no longer than the borrower’s education program.

(ii) The remaining, unpaid principal balance of the extension of credit is less than one thousand five hundred dollars ($1,500) at the time of the borrower’s graduation or completion of the program.

(iii) The borrower fails to graduate or successfully complete their education program and has a balance due at the time of their disenrollment from the postsecondary institution.

(r) “Student loan account” means student loans owed by a borrower grouped together for billing purposes by a student loan servicer.

(s) “Student loan servicer” means any person engaged in the business of servicing student loans in this state. A “student loan servicer” does not include any of the following:

(1) A debt collector, as defined in subdivision (c) of Section 1788.2, whose student loan debt collection business, and business operations, involve collecting, or attempting to collect, on defaulted student loans, that is, federal student loans for which no payment has been received for 270 days or more, or private student loans, in default, according to the terms of the loan documents. Debt collectors who also service nondefaulted student loans as part of their business and business operations are “student loan servicers.”

(2) In connection with its responsibilities as a guaranty agency engaged in default aversion, a state or nonprofit private institution or organization having an agreement with the United States Secretary of Education under the Higher Education Act of 1965 (20 U.S.C. Sec. 1078(b)).

(3) A federally chartered credit union.

history: (History: Amended by Stats. 2022, Ch. 452, Sec. 20. (SB 1498) Effective January 1, 2023.)

title: 1.6C.10. Student Loans: Borrower Rights

chapter: 1. Student Borrower Bill Of Rights

path: 1.6C.10. Student Loans: Borrower Rights > 1. Student Borrower Bill Of Rights


text:
(a) (1) A person shall not engage in abusive acts or practices when servicing a student loan in this state.

(2) An act or practice is abusive in connection with the servicing of a student loan, if the act or practice does either of the following:

(A) Materially interferes with the ability of a borrower to understand a term or condition of a student loan.

(B) Takes unreasonable advantage of any of the following:

(i) A lack of understanding on the part of a borrower of the material risks, costs, or conditions of the student loan.

(ii) The inability of a borrower to protect the interests of the borrower when selecting or using either of the following:

(I) A student loan.

(II) A feature, term, or condition of a student loan.

(iii) The reasonable reliance by the borrower on a person engaged in servicing a student loan to act in the interests of the borrower.

(3) Abusive acts and practices include, but are not limited to, those described in paragraph (2).

(b) A student loan servicer shall not do any of the following:

(1) Directly or indirectly employ a scheme, device, or artifice to defraud or mislead a borrower.

(2) Engage in an unfair or deceptive practice toward a borrower or misrepresent or omit material information in connection with the servicing of a student loan, including, but not limited to, misrepresenting the amount, nature, or terms of a fee or payment due or claimed to be due on a student loan, the terms and conditions of the student loan agreement, or the borrower’s obligations under the student loan.

(3) Misapply payments made by a borrower to the outstanding balance of a student loan.

(4) (A) If the student loan servicer is required to or voluntarily reports to a consumer reporting agency, fail to accurately report each borrower’s payment performance to at least one consumer reporting agency that compiles and maintains files on consumers on a nationwide basis, upon acceptance as a data furnisher by that consumer reporting agency.

(B) For purposes of this paragraph, “consumer reporting agency that compiles and maintains files on consumers on a nationwide basis” has the same meaning as defined in the federal Fair Credit Reporting Act (15 U.S.C. Sec. 1681a(p)).

(5) Refuse to communicate with an authorized representative of the borrower who provides a written authorization signed by the borrower, provided the student loan servicer may adopt reasonable procedures for verifying that the representative is in fact authorized to act on behalf of the borrower and for protecting the borrower from fraud or abusive practices.

(6) Negligently or intentionally make a false statement or knowingly and willfully make an omission of a material fact in connection with information or reports filed with the department or another governmental agency.

(7) Engage in an unfair or deceptive practice toward a military borrower or misrepresent or omit material information in connection with the servicing of a student loan owed by a military borrower. For purposes of this paragraph, “misrepresent or omit material information” includes, but is not limited to:

(A) Misrepresenting or omitting the availability of a program or protection specific to military borrowers or applicable to military borrowers.

(B) A misrepresentation or omission in violation of paragraph (2) of this subdivision.

(8) Engage in an unfair or deceptive practice toward any borrower working in public service or misrepresent or omit material information in connection with the servicing of a student loan owed by a borrower working in public service. For purposes of this paragraph, “misrepresent or omit material information” includes, but is not limited to:

(A) Misrepresenting or omitting the availability of a program or protection specific to borrowers working in public service or applicable to those borrowers.

(B) A misrepresentation or omission in violation of paragraph (2).

(9) Engage in an unfair or deceptive practice toward an older borrower or older cosigner or misrepresent or omit material information in connection with the servicing of a student loan owed or cosigned by an older borrower. For purposes of this paragraph, “misrepresent or omit material information” includes, but is not limited to:

(A) Misrepresenting or omitting the availability of a program or protection specific to older borrowers or older cosigners or applicable to those borrowers or cosigners.

(B) Misrepresenting or omitting the older borrower’s or older cosigner’s obligations under the student loan.

(C) A misrepresentation or omission in violation of paragraph (2).

(10) Engage in an unfair or deceptive practice toward a borrower with a disability or misrepresent or omit material information in connection with the servicing of a student loan owed by a borrower with a disability. For purposes of this paragraph, “misrepresent or omit material information” includes, but is not limited to:

(A) Misrepresenting or omitting the availability of a program or protection specific to borrowers with disabilities or applicable to those borrowers.

(B) A misrepresentation or omission in violation of paragraph (2) of this subdivision.

history: (History: Added by Stats. 2020, Ch. 154, Sec. 2. (AB 376) Effective January 1, 2021.)

title: 1.6C.10. Student Loans: Borrower Rights


text:
Except to the extent that this section is inconsistent with any provision of federal law or regulation, and then only to the extent of the inconsistency, a student loan servicer shall do all of the following:

(a) Post and process student loan payments in a timely manner pursuant to the servicer’s established payment processing policies that shall be disclosed to and readily accessible by borrowers and credit student loan payments in a timely manner in accordance with the following:

(1) A payment received on or before 11:59 p.m. on the date on which that payment is due, in the amount, manner, and location indicated by the person engaged in student loan servicing, shall be credited as effective on the date on which the payment was received by the person engaged in student loan servicing in this state. A person engaged in student loan servicing in this state shall treat a payment received from the borrower on the borrower’s due date as an “on-time” payment.

(2) If a payment is made by check, credit the payment on the date the check was received by the student loan servicer regardless of the date of processing. A borrower’s online account shall reflect payments made within three business days of the date of payment unless payment is made by check and contains no information identifying to which account or loan the payment should be credited. In the event the student loan servicer receives a paper check with no information identifying to which account or loan the payment should be credited, the student loan servicer shall determine, within 10 business days, to which account and loan the payment should be credited. When the servicer determines to which account and loan the payment should be credited, the servicer shall credit the payment as of the date the payment was received by the servicer and update the borrower’s online account within one business day.

(b) If a person engaged in servicing a student loan makes a material change in the mailing address, office, or procedures for handling borrower payments, and that change causes a material delay in the crediting of a borrower payment made during the 60-day period following the date on which that change took effect, the person engaged in servicing the student loan shall not impose on the borrower any negative consequences related to that material change, including negative credit reporting, lost eligibility for a borrower benefit, late fees, interest capitalization, or other financial injury.

(c) (1) Inquire of a borrower how to apply an overpayment to a student loan. A borrower’s direction on how to apply an overpayment to a student loan shall be effective with respect to future overpayments during the term of a student loan until the borrower provides a different direction.

(2) (A) In the absence of a direction provided by a borrower pursuant to paragraph (1), allocate an overpayment on a student loan account in a manner that is in the best financial interest of a student loan borrower.

(B) As used in this paragraph, “best financial interest of a student loan borrower” means reducing the total cost of the student loan, including principal balance, interest, and fees.

(3) A student loan servicer shall be considered to meet the requirements of paragraph (2) if the servicer allocates the overpayment to the loan with the highest interest rate on the borrower’s student loan account, unless the borrower specifies otherwise.

(d) (1) Except as provided in federal law or required by a student loan agreement, comply with a direction provided by a borrower as to how to allocate a partial payment to a student loan.

(2) In the absence of a direction provided by a borrower pursuant to paragraph (1) of this subdivision, allocate a partial payment in a manner that minimizes late fees and negative credit reporting.

(3) A student loan servicer shall be considered to have satisfied paragraph (2) if, when there are multiple loans on a borrower’s student loan account at an equal stage of delinquency, the student loan servicer allocates partial payments to satisfy as many loans as possible on a borrower’s student loan account.

(e) (1) If a student loan servicer imposes a fee on a borrower for a past due student loan payment, that fee shall be reasonable and proportional to the total costs incurred as a result of the late payment by a borrower, and shall not exceed 6 percent of any amount past due.

(2) A student loan servicer shall not impose a minimum late fee. For purposes of this paragraph, “minimum late fee” includes any fee that is not assessed as a percentage of any amount past due.

(f) Diligently oversee its service providers. For purposes of this subdivision, “diligently oversee its service providers” includes maintaining policies and procedures to oversee compliance by third-party service providers engaged in any aspect of student loan servicing. Student loan servicers have joint and several liability for the conduct of their service providers for any act or practice that violates this title.

(g) (1) Timely process its paperwork, consistent with existing federal requirements, including, but not limited to, ensuring that customer service personnel have received both of the following:

(A) Appropriate training about the handling of paperwork.

(B) Access to necessary information about forms and applications that are in process, have been approved, or have been denied.

(2) The requirements of this subdivision include ensuring that customer service personnel have access to applications for income-driven repayment plans and other forms required to access benefits and protections for federal student loans, as described in Section 1070 and following of Title 20 of the United States Code.

(h) Except as required by a student loan agreement, all records about a borrower’s account shall be maintained for the period of time during which a person performs student loan servicing for a borrower’s account and for a minimum of three years after the loan serviced has been paid in full, assigned to collection, or the servicing rights have been transferred.

(i) Treat a qualified request as if it were a qualified written request and comply with subdivision (t) with respect to that qualified request.

(j) Maintain policies and procedures permitting a borrower who is dissatisfied with the outcome of an initial qualified request to escalate the borrower’s concern to a supervisor.

(k) (1) Protect borrowers from any negative consequences that are directly related to the issue identified in a borrower’s qualified request or qualified written request until that request has been resolved. For purposes of this subdivision, “negative consequences” include, but are not limited to, negative credit reporting, lost eligibility for a borrower benefit, late fees, interest capitalization, or other financial injury.

(2) Notwithstanding paragraph (1), after receipt of a qualified request or qualified written request related to a dispute on a borrower’s payment on a student loan, a student loan servicer shall not, for 60 days, furnish information to a consumer reporting agency regarding a payment that is the subject of the qualified request or the qualified written request.

(l) Protect borrowers from any negative consequences stemming from a sale, assignment, transfer, system conversion, or payment made by the borrower to the original student loan servicer consistent with the original student loan servicer’s policy. For purposes of this subdivision, “negative consequences” include, but are not limited to, any of the following:

(1) Negative credit reporting.

(2) The imposition of late fees not required by the promissory note.

(3) Loss of or denial of eligibility for any benefit or protection established under federal law or included in a loan contract.

(m) If the sale, assignment, or other transfer of the servicing of a student loan results in a change in the identity of the party to whom the borrower is required to send payments or direct any communications concerning the student loan, the student loan servicer shall notify the borrower in writing at least 15 days before the borrower is required to send a payment on the student loan of all of the following:

(1) The identity of the new student loan servicer and the number of the license, issued by the commissioner, of the new student loan servicer.

(2) The name and address of the new student loan servicer to whom subsequent payments or communications are required to be sent.

(3) The telephone numbers and internet websites of the new student loan servicer.

(4) The effective date of the sale, assignment, or transfer.

(5) The date on which the current student loan servicer will stop accepting payments on the borrower’s student loan.

(6) The date on which the new student loan servicer will begin accepting payments on the borrower’s student loan.

(n) Ensure all necessary information regarding a borrower, a borrower’s account, and a borrower’s student loan accompanies a loan when it transfers to a new student loan servicer within 45 calendar days of the effective date of the sale, assignment, or transfer. For purposes of this subdivision, “necessary information” shall include, at minimum, all of the following:

(1) A schedule of all transactions credited or debited to the student loan account.

(2) A copy of the promissory note for the student loan.

(3) Any notes created by the student loan servicer’s personnel reflecting communications with the borrower about the student loan account.

(4) A report of the data fields relating to the borrower’s student loan account created by the student loan servicer’s electronic systems in connection with servicing practices.

(5) Copies or electronic records of any information or documents provided by the borrower to the student loan servicer.

(6) Usable data fields with information necessary to assess qualification for forgiveness, including public service loan forgiveness, if applicable.

(7) Any information necessary to compile a payment history.

(o) Provide specialized training for any customer service personnel that advises military borrowers about student loan repayment benefits and protections.

(p) Provide specialized training for any customer service personnel that advises borrowers working in public service about student loan repayment benefits and protections.

(q) Provide specialized training for any customer service personnel that advises older borrowers about risks specifically applicable to older borrowers to ensure that, once identified, older borrowers are informed about student loan repayment benefits and protections, including disability discharge programs for private and federal loans, if applicable, and, to the extent an older borrower serves as cosigner, about cosigner release provisions in private student loan contracts.

(r) Provide specialized training for any customer service personnel that advises borrowers with disabilities about student loan repayment benefits and protections, including disability discharge programs for private and federal loans. Under no circumstances shall a person engage in any unfair or deceptive practice toward any borrower with a disability or misrepresent or omit any material information in connection with the servicing of a student loan owed by a borrower with a disability. For purposes of this subdivision, “misrepresent or omit any material information” includes, but is not limited to, misrepresenting or omitting any of the following:

(1) The availability of any program or protection specific to borrowers with disabilities or applicable to those borrowers.

(2) The amount, nature, or terms of any fee or payment due or claimed to be due on a student loan.

(3) The terms and conditions of the student loan agreement.

(4) The borrower’s obligations under the student loan.

(s) Respond within 10 business days to communications from the Student Loan Ombudsman, established pursuant to Chapter 4 (commencing with Section 1788.104), or within a shorter, reasonable time as the Student Loan Ombudsman may request in that person’s communication.

(t) (1) Respond to a qualified written request by acknowledging receipt of the request within 10 business days and within 30 business days, provide information relating to the request and, if applicable, either the action the student loan servicer will take to correct the account or an explanation for the position that the borrower’s account is correct.

(2) The 30-day period described in paragraph (1) may be extended for not more than 15 days if, before the end of the 30-day period, the student loan servicer notifies the borrower of the extension and the reason for the delay in responding.

history: (History: Amended by Stats. 2021, Ch. 124, Sec. 5. (AB 938) Effective January 1, 2022.)

title: 1.6C.10. Student Loans: Borrower Rights

path: 1.6C.10. Student Loans: Borrower Rights > 2. Setting Clear “Rules of the Road” for the Student Loan Industry


text:
(a) A student loan servicer shall do both of the following:

(1) Comply with this title.

(2) Comply with all applicable federal laws relating to student loan servicing, as from time to time amended, and the regulations promulgated thereunder.

(b) Any consumer who suffers damage as a result of the failure of a student loan servicer to comply with paragraph (1) or (2) of subdivision (a) may, subject to the requirements of subdivisions (d) to (g), inclusive, bring an action on that consumer’s behalf and on behalf of a similarly situated class of consumers against that student loan servicer to recover or obtain any of the following:

(1) Actual damages, but in no case, shall the total award of damages be less than five hundred dollars ($500) per plaintiff, per violation.

(2) An order enjoining the methods, acts, or practices.

(3) Restitution of property.

(4) Punitive damages.

(5) Attorney’s fees.

(6) Any other relief that the court deems proper.

(c) In addition to any other remedies provided by this subdivision or otherwise provided by law, whenever it is proven by a preponderance of the evidence that a student loan servicer has engaged in conduct that substantially interferes with a borrower’s right to an alternative payment arrangement; loan forgiveness, cancellation, or discharge; or any other financial benefit as established under the terms of a borrower’s promissory note or under the Higher Education Act of 1965 (20 U.S.C. Sec. 1070a et seq.), as from time to time amended, and the regulations promulgated thereunder, the court shall award treble actual damages to the plaintiff, but in no case shall the award of damages be less than one thousand five hundred dollars ($1,500) per plaintiff, per violation.

(d) (1) At least 45 days before bringing an action for damages or injunctive relief pursuant to this chapter, a consumer shall do all of the following:

(A) Provide written notice to the person alleged to have violated subdivision (a) regarding the nature of the alleged violations.

(B) Demand that the person correct and remedy the method, acts, or practices to which the notice required by subparagraph (A) refers.

(2) The notice required by this subdivision shall be sent by certified or registered mail, return receipt requested, to the person’s address on file with the Department of Financial Protection and Innovation or to the person’s principal place of business within California.

(e) An action for damages or injunctive relief brought by a consumer only on that consumer’s behalf may not be maintained under subdivision (b) upon a showing by a person that an appropriate correction and remedy is given, or agreed to be given within a reasonable time, to the consumer within 30 days after receipt of the notice.

(f) An action for damages brought by a consumer on both the consumer’s behalf and on behalf of a similarly situated class of consumers may not be maintained under subdivision (b) upon a showing by a person alleged to have employed or committed methods, acts, or practices declared unlawful that all of the following are true:

(1) All consumers similarly situated have been identified, or a reasonable effort to identify those other consumers has been made.

(2) All consumers so identified have been notified that, upon their request, the person shall make the appropriate correction and remedy.

(3) The correction and remedy requested by the consumers has been, or, in a reasonable time, will be, given.

(4) The person has ceased from engaging, or if immediate cessation is impossible or unreasonably expensive under the circumstances, the person will, within a reasonable time, cease to engage, in the methods, act, or practices.

(g) Attempts to comply with a demand described in paragraph (2) of subdivision (d) by a person receiving that demand shall be construed to be an offer to compromise and shall be inadmissible as evidence pursuant to Section 1152 of the Evidence Code. Furthermore, these attempts to comply with a demand shall not be considered an admission of engaging in an act or practice declared unlawful by subdivision (a). Evidence of compliance or attempts to comply with this section may be introduced by a defendant for the purpose of establishing good faith or to show compliance with subdivision (a).

(h) An award of damages shall not be given in an action based on a method, act, or practice in violation of subdivision (a) if the person alleged to have employed or committed that method, act, or practice does both of the following:

(1) Proves by a preponderance of the evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the use of reasonable procedures adopted to avoid that error.

(2) Makes an appropriate correction, repair, replacement, or other remedy according to the provisions of subdivisions (d) and (e) as required by law.

(i) The commissioner shall administer and enforce the provisions of this title and may promulgate rules and regulations and issue orders consistent with that authority.

(1) The commissioner shall have the authority to carry over any regulations issued pursuant to the Student Loan Servicing Act in order to implement equivalent provisions of this act.

(2) Any rules issued pursuant to the Student Loan Servicing Act in effect at the time of enactment of this act shall remain in effect until the commissioner repeals or reissues those regulations.

history: (History: Amended by Stats. 2022, Ch. 452, Sec. 21. (SB 1498) Effective January 1, 2023.)

title: 1.6C.10. Student Loans: Borrower Rights

path: 1.6C.10. Student Loans: Borrower Rights > 3. Enforcement of the Student Borrower Bill of Rights


text:
(a) Not later than 180 days following the operative date of this chapter, the commissioner shall designate a Student Loan Ombudsman to work within the department. The Student Loan Ombudsman shall hire additional staff as necessary to implement this section.

(b) The Student Loan Ombudsman shall receive and review complaints from student loan borrowers.

(c) Any complaint regarding a student loan servicer licensed or subject to licensing under the Student Loan Servicing Act (Division 12.5 (commencing with Section 28100) of the Financial Code) shall be referred to the appropriate unit within the department. This unit may investigate complaints referred by the Student Loan Ombudsman, and from the public, who may also submit complaints directly to the department.

(d) Complaints regarding student loans not subject to the Student Loan Servicing Act (Division 12.5 (commencing with Section 28100) of the Financial Code) shall be referred to the Department of Justice. The Department of Justice may investigate complaints regarding student loans referred by the Student Loan Ombudsman, and from the public, who may also submit complaints directly to the Department of Justice.

(e) Complaints regarding any private postsecondary educational institution licensed by the Bureau for Private Postsecondary Education shall be referred to the Bureau for Private Postsecondary Education’s Office of Student Assistance and Relief.

(f) The Student Loan Ombudsman shall confer with the Department of Justice and the Office of Student Assistance and Relief regarding the student loan complaints, the proper referral processes for those complaints, and the reporting requirements of the Student Loan Ombudsman under this title.

(g) The Student Loan Ombudsman has all of the following duties:

(1) Compiling and analyzing data on the number of student loan borrower complaints received by the Department of Financial Protection and Innovation and referred to the Department of Justice.

(2) Providing information to the public, agencies, legislators, and others regarding the problems and concerns of student loan borrowers and making recommendations for resolving those problems and concerns.

(3) Analyzing and monitoring the development and implementation of federal and state laws, rules, regulations, and policies relating to student loan borrowers.

(4) Disseminating information concerning the availability of the Department of Financial Protection and Innovation, the Department of Justice, and the Bureau of Private Postsecondary Education to accept complaints from individual student loan borrowers and potential student loan borrowers.

(5) Requesting and compiling information provided by any student loan servicer if reasonably determined by the Student Loan Ombudsman to be necessary to effectuate the duties described in this subdivision, except if that student loan servicer is a national bank, as defined in Section 25b of Title 12 of the United States Code, and only to the extent that the requirements of this paragraph are preempted with respect to national banks pursuant to Section 25b and following of Title 12 of the United States Code.

(6) Not later than 18 months after the operative date of this chapter, and not less frequently than once per year thereafter, the Student Loan Ombudsman shall submit a report to the appropriate committees of the Legislature having jurisdiction over higher education and financial institutions. The Student Loan Ombudsman shall report on all of the following:

(A) The implementation of this section.

(B) The types of complaints received regarding student loan borrowing, student loan repayment and servicing, and how these complaints are resolved.

(C) Other data and analysis on outstanding student loan issues faced by borrowers.

(h) Notwithstanding subdivision (l) of Section 1788.100, for purposes of this chapter, “student loan servicer” includes a state or nonprofit private institution or organization having an agreement with the United States Secretary of Education under the Higher Education Act of 1965 (20 U.S.C. Sec. 1078(b)) in connection with its responsibilities as a guaranty agency engaged in default aversion.

(i) The operation of this chapter is contingent upon the enactment of an appropriation in the annual Budget Act for its purposes.

(j) This chapter shall become operative on July 1, 2021.

history: (History: Amended by Stats. 2022, Ch. 452, Sec. 22. (SB 1498) Effective January 1, 2023.)

title: 1.6C.10. Student Loans: Borrower Rights

path: 1.6C.10. Student Loans: Borrower Rights > 4. Establishment of The California Student Loan Ombudsman


text:
(a) The commissioner may monitor for risks to consumers in the provision of student loan servicing in this state, including developments in the market for those services, by compiling and analyzing data and other information based on any of the following considerations:

(1) The likely risks and costs to consumers associated with using or repaying a student loan or with the servicing of a student loan.

(2) The understanding by consumers of the risks of a student loan or the servicing of a student loan.

(3) The legal protections applicable to the offering or provision of a student loan or the servicing of a student loan, including the extent to which the law is likely to adequately protect consumers.

(4) The rates of growth in the offering or provision of a student loan or the servicing of that loan.

(5) The extent, if any, to which the risks of a student loan or the servicing of a student loan disproportionately affect traditionally underserved consumers.

(6) The type, number, and other pertinent characteristics of student loan servicers in this state.

(b) In conducting any monitoring or assessment authorized by this section, the commissioner may gather information regarding the organization, business conduct, markets, and activities of student loan servicers in this state, except if that student loan servicer is a national bank, as defined in Section 25b of Title 12 of the United States Code, and only to the extent that the requirements of this paragraph are preempted with respect to national banks pursuant to Section 25b and following of Title 12 of the United States Code. The commissioner may enter into contracts to perform the duties required in this section, as necessary.

(c) In order to gather information described in subdivision (b), the commissioner may do both of the following:

(1) Gather and compile information from a variety of sources, including consumer complaints, voluntary surveys and voluntary interviews of consumers, surveys and interviews with student loan servicers and service providers, and review of available databases.

(2) Require persons engaged in student loan servicing and licensed or subject to the licensing requirements of the Student Loan Servicing Act (Division 12.5 (commencing with Section 28100) of the Financial Code) to file, under oath or otherwise, in the form and within a reasonable period of time as the commissioner may prescribe, annual or special reports, or answers in writing to specific questions, as necessary for the commissioner to fulfill the monitoring, assessment, and reporting responsibilities required in this title.

(d) (1) In addition to any other market monitoring activities deemed necessary by the commissioner, pursuant to subdivision (a), the department may gather and compile information from student loan servicers to assemble data that assesses the total size of the student loan market in this state, the servicing of loans owed by borrowers at risk of default, the servicing of private student loans owed by borrowers experiencing financial distress, and the servicing of federal student loans for borrowers who seek to repay their loans under an Income Driven Repayment Plan as described in Section 1070 et seq. of Title 20 of the United States Code.

(2) The commissioner may, on a quarterly basis, develop and publicize metrics based on data collected pursuant to this subdivision, and those metrics may identify each student loan servicer and publish relevant metrics related to performance of student loan servicing by each person. In executing the function described in this subdivision, the commissioner may meet and confer with the Student Loan Ombudsman established pursuant to Chapter 4.

(e) Notwithstanding subdivision (l) of Section 1788.100, for purposes of this chapter, “student loan servicer” includes a state or nonprofit private institution or organization having an agreement with the United States Secretary of Education under the Higher Education Act of 1965 (20 U.S.C. Sec. 1078(b)) in connection with its responsibilities as a guaranty agency engaged in default aversion.

(f) This chapter shall become operative on July 1, 2021.

(g) The operation of this chapter is contingent upon the enactment of an appropriation in the annual Budget Act for its purposes.

history: (History: Amended by Stats. 2021, Ch. 124, Sec. 6. (AB 938) Effective January 1, 2022.)

title: 1.6C.10. Student Loans: Borrower Rights

path: 1.6C.10. Student Loans: Borrower Rights > 5. Shining a Spotlight on Student Loan Industry Practices


history: (History: Added by Stats. 2024, Ch. 853, Sec. 14. (AB 3281) Effective January 1, 2025.)

title: 1.6C.10. Student Loans: Borrower Rights

chapter: 5. Shining a Spotlight on Student Loan Industry Practices


text:
(a) The complaint in an action brought by a debt collector for debt that originated with a general acute care hospital licensed pursuant to subdivision (a) of Section 1250 of the Health and Safety Code shall allege all of the following:

(1) That the plaintiff is a debt collector.

(2) That the underlying debt originated with a general acute care hospital.

(3) The information contained in paragraph (6) of subdivision (e) of Section 127425 of the Health and Safety Code and a statement identifying the language in which that information was sent to the debtor.

(4) The balance of the debt upon assignment to the debt collector and an explanation of the amount, nature, and reason for any interest and fees that are added to the debt balance by the debt collector after the assignment of the debt. This paragraph shall not be deemed to require a specific itemization, but the explanation shall identify separately the charge-off balance of the debt upon assignment to the debt collector, the total of any interest, and the total of any fees added to the debt balance by the debt collector after the assignment of the debt.

(5) The date of default or the date of the last payment, and the date the debt was assigned.

(6) The name and address of the hospital at the time of assignment.

(7) The hospital’s account number associated with the debt.

(b) Copies of the application for financial assistance that was provided to the debtor by the hospital and the notice that was provided to the debtor by the hospital about applying for financial assistance shall be attached to the complaint. If the notice was provided as part of the hospital bill that cannot be separated, the bill shall be redacted to remove confidential information or a sample hospital bill with the substance of the notice regarding financial assistance in the format in use at the time the patient was billed may be provided.

(c) This title does not require the disclosure in public records of personal, financial, or medical information, the confidentiality of which is protected by state or federal law. The plaintiff shall redact protected information filed with the complaint.

(d) A default or other judgment shall not be entered against a debtor for debt pursuant to this section unless business records, authenticated through a sworn declaration, are submitted by the debt collector to the court to establish the facts required to be alleged pursuant to subdivision (a).

(e) If a debt collector plaintiff seeks a default judgment and has not complied with this title, the court shall not enter a default judgment for the plaintiff and may, in its discretion, dismiss the action.

(f) Except as provided in this title, this section does not modify or otherwise amend the procedures established in Section 585 of the Code of Civil Procedure.

history: (History: Added by Stats. 2021, Ch. 473, Sec. 2. (AB 1020) Effective January 1, 2022.)

title: 1.6C. FAIR DEBT COLLECTION PRACTICES

article: 2. Debt Collector Responsibilities

path: 1.6C. FAIR DEBT COLLECTION PRACTICES > 2. Debt Collector Responsibilities


text: This title shall be known and may be cited as the Private Student Loan Collections Reform Act.

history: (History: Added by Stats. 2021, Ch. 559, Sec. 1. (AB 424) Effective January 1, 2022. Operative July 1, 2022, pursuant to Section 1788.211.)

title: 1.6C.15. Private Student Loan Collections Reform Act


text:
For purposes of this title, the following definitions apply:

(a) “Borrower” or “student loan borrower” means a person who has received or agreed to pay a private education loan.

(b) “Consumer report” and “consumer reporting agency” shall each have the same meaning that these terms have under the federal Fair Credit Reporting Act (15 U.S.C. Sec. 1681 et seq.).

(c) (1) “Cosigner” means any individual who is liable for the obligation of another without compensation, regardless of how the individual is designated in the contract or instrument with respect to that obligation, including an obligation under a private education loan extended to consolidate a borrower’s preexisting private education loans, and shall include any person whose signature is requested as a condition to grant credit or to forbear on collection.

(2) “Cosigner” does not include a spouse of an individual described in paragraph (1), the signature of whom is needed to perfect the security interest in a loan.

(d) “Creditor” means any of the following:

(1) The original creditor, where ownership of a private education loan has not been sold, assigned, or transferred.

(2) The person or entity that owned the private education loan at the time the private education loan defaulted, even if that person or entity did not originate the private education loan, and where such a private education loan has not subsequently been sold, transferred, or assigned.

(3) A person or entity that purchased a defaulted private education loan, whether it collects the private education loan itself or hires a third party for collection, or hires an attorney for collection litigation.

(e) “Debtor” means a borrower, cosigner, or other person that owes or is alleged to owe an unpaid amount on a private education loan.

(f) (1) “Exempt entity” means an entity that meets both of the following requirements:

(A) It is a depository institution as defined in Section 1420 of the Financial Code.

(B) It, together with its affiliates, will be, in the aggregate, a plaintiff in 35 or fewer private student loan collection actions in the current calendar year. Private education loans assigned to a third party for the purposes of collection shall count towards the numerical limit set forth in this subparagraph.

(2) For purposes of this subdivision, an entity is an “affiliate” of another specified entity if it directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the other specified entity.

(g) “Original creditor” means the private education lender identified in a promissory note, loan agreement, or loan contract entered into with a student loan borrower or cosigner.

(h) “Private education lender” means either of the following:

(1) Any person or entity engaged in the business of securing, making, or extending private education loans.

(2) Any holder of a private education loan.

(i) “Private education loan” means an extension of credit that meets all of the following conditions:

(1) Is not made, insured, or guaranteed under Title IV of the Higher Education Act of 1965 (20 U.S.C. Sec. 1070 et seq.).

(2) Is extended to a consumer expressly, in whole or in part, for postsecondary educational expenses, regardless of whether the loan is provided by the educational institution that the student attends.

(3) Does not include open-end credit or any loan that is secured by real property or a dwelling.

(4) Does not include an extension of credit in which the covered educational institution is the original creditor if either:

(A) The term of the extension of credit is 90 days or less.

(B) An interest rate will not be applied to the credit balance and the term of the extension of credit is one year or less, even if the credit is payable in more than four installments.

(j) “Private education loan collection action” means any suit, arbitration, or other legal proceeding in which a claim is asserted to collect a private education loan.

(k) “Private education loan collector” means a person, other than a private education lender, collecting or attempting to collect on a defaulted private education loan.

path: 1.6C.15. Private Student Loan Collections Reform Act


text:
(a) A private education lender or a private education loan collector shall not make any written statement to a debtor in an attempt to collect a private education loan unless the private education lender or private education loan collector possesses the following information:

(1) The name of the owner of the private education loan.

(2) The creditor’s name at the time of default, if applicable.

(3) The creditor’s account number used to identify the private education loan at the time of default, if the original creditor used an account number to identify the private education loan at the time of default.

(4) The amount due at default.

(5) An itemization of interest, if any, that has accrued on the private education loan.

(6) An itemization of fees, if any, claimed to be owed on the private education loan and whether those fees were imposed by the original creditor or any subsequent owners of the private education loan.

(7) The date that the private education loan was incurred.

(8) The date of the first partial payment or the first day that a payment was missed, whichever is earlier, that precipitated default.

(9) The date and amount of the last payment, if applicable.

(10) Any payments, settlement, or financial remuneration of any kind paid to the creditor by a guarantor, surety, or other party not obligated on the loan as compensation under a separate contract that provides coverage for financial losses incurred as a result of default, if applicable.

(11) The names of all persons or entities that owned the private education loan after the time of default, if applicable, and the date of each sale or transfer.

(12) A copy of the self-certification form and any other “needs analysis” conducted by the original creditor prior to origination of the loan.

(13) Documentation establishing that the creditor is the owner of the specific individual private education loan at issue. If the private education loan was assigned more than once, the creditor shall possess each assignment or other writing evidencing the transfer of ownership of the specific individual private education loan to establish an unbroken chain of ownership, beginning with the original creditor to the first subsequent creditor and each additional creditor. Each assignment or other writing evidencing transfer of ownership or the right to collect shall contain the original creditor’s account number (redacted for security purposes to show only the last four digits) of the private education loan purchased or otherwise assigned, the date of purchase and assignment, and shall clearly show the borrower’s correct name associated with the original account number. The assignment or other writing attached shall be that by which the creditor or other assignee acquired the private education loan, not a document prepared for litigation.

(14) A copy of all pages of the contract, application, or other documents evidencing the debtor’s liability for the private education loan, stating all terms and conditions applicable to the private education loan.

(15) A list of all collection attempts made in the last 12 months, including date and time of all calls and written communications.

(16) A statement as to whether the creditor is willing to renegotiate the terms of the private student loan.

(17) Copies of all written settlement communications made in the last 12 months, or, in the alternative, a statement that the creditor has not attempted to settle or otherwise renegotiate the debt prior to suit.

(18) A statement as to whether the private education loan is eligible for an income-based repayment plan.

(b) (1) In addition to any other information required under applicable federal or state law, a private education lender or private education loan collector shall provide the information set forth in subdivision (a) in the first written collection communication with a debtor after the first of either of the following:

(A) Default and acceleration.

(B) A period of 12 consecutive months of default.

(2) A private education lender or private education loan collector shall provide the information set forth in subdivision (a) to the debtor upon the debtor’s request if both of the following are true:

(A) An event described in subparagraph (A) or (B) of paragraph (1) has occurred.

(B) The debtor has not requested or received the information set forth in subdivision (a) within the previous 12 months.


text:
(a) All settlement agreements between a private education lender or private education loan collector and a debtor shall be documented in open court or otherwise reduced to writing. The private education lender or private education loan collector shall ensure that a copy of the written agreement is provided to the debtor.

(b) A private education lender or private education loan collector that accepts a payment as payment in full, or as a full and final compromise of a private education loan, shall provide, within 30 calendar days, a final statement that shall clearly and conspicuously show the amount and date paid, the name of the entity paid, the current account number, the name of the private education lender or private education loan collector, the account number issued by the private education lender or private education loan collector, the name of the owner of the private education loan, and that a zero balance is owing. The statement may be provided electronically if the parties agree.


text: A private education lender or private education loan collector shall not bring suit or initiate an arbitration or other legal proceeding to collect a private education loan if the applicable statute of limitations for the private education lender’s or private education loan collector’s claim has expired.


text:
In an action brought by a private education lender or private education loan collector to collect a private education loan:

(a) The complaint shall allege all of the following:

(1) The information required by paragraphs (1) to (11), inclusive, of subdivision (a) of Section 1788.202.

(2) That the applicable statute of limitations has not expired.

(3) That the plaintiff has complied with Section 1788.202.

(b) Copies of the documents required by paragraphs (12) to (14), inclusive, of subdivision (a) of Section 1788.202 shall be attached to the complaint.

(c) The requirements of this title shall not be deemed to require the disclosure in public records of personal, financial, or medical information, the confidentiality of which is protected by any state or federal law.

(d) This section does not apply to a plaintiff that attaches to the complaint a declaration or affidavit pursuant to Section 2015.5 of the Code of Civil Procedure that is signed by a natural person and states all of the following:

(1) That the plaintiff is an exempt entity.

(2) The category in subdivision (a) of Section 1420 of the Financial Code under which the plaintiff falls.

(3) The name and title of the signer.

(4) That the signer has been authorized by the entity to make the affidavit or declaration.


text:
(a) In an action initiated by a private education lender or private education loan collector, no default or other judgment may be entered against a defendant unless documents are submitted by the plaintiff to the court to establish the facts required to be alleged by paragraphs (1) and (2) of subdivision (a) of Section 1788.205. The documents shall be properly authenticated and each shall be in a form that would be admissible as a business record under Section 1271 of the Evidence Code.

(b) In an action initiated by a private education lender or private education loan collector, no default or other judgment may be entered against a defendant unless copies of the documents described in subdivision (b) of Section 1788.205 have been submitted by the plaintiff to the court. These documents shall be properly authenticated and each shall be in a form that would be admissible as a business record under Section 1271 of the Evidence Code.

(c) In any action on a private education loan, if a plaintiff seeks a default judgment and has not complied with the requirements of this title, the court shall not enter a default judgment for the plaintiff and may, in its discretion, dismiss the action.

(d) Except as provided in this title, this section is not intended to modify or otherwise amend the procedures established in Section 585 of the Code of Civil Procedure.

(e) This section does not apply to a plaintiff that attaches to the complaint a declaration or affidavit pursuant to Section 2015.5 of the Code of Civil Procedure that is signed by a natural person and states all of the following:

(1) That the plaintiff is an exempt entity.

(2) The category in subdivision (a) of Section 1420 of the Financial Code under which the plaintiff falls.

(3) The name and title of the signer.

(4) That the signer has been authorized by the entity to make the affidavit or declaration.


text: Notwithstanding Section 473.5 of the Code of Civil Procedure, if service of a summons has not resulted in actual notice to a person in time to defend an action brought by a private education lender or a private education loan collector and a default or default judgment has been entered against the person in the action, the person may serve and file a notice of motion and motion to set aside the default or default judgment and for leave to defend the action utilizing the procedures set forth in Section 1788.61.


text:
(a) A person may bring a cause of action against a creditor, private education lender, or private education loan collector for a violation of any provision of this title in order to recover or obtain any of the following:

(1) Damages in an amount equal to the sum of the following:

(A) Any actual damages sustained by that person as a result of the violation.

(B) Statutory damages in an amount as the court may allow, which shall not be less than five hundred dollars ($500) per violation.

(2) Damages pursuant to Section 3294.

(3) An order vacating any default judgment entered against that person.

(4) Restitution of all moneys taken from or paid by that person after a default judgment was entered in favor of the private education lender or private education loan collector.

(5) An order directing the private education lender or private education loan collector to do one or more of the following:

(A) Request that a consumer reporting agency correct a consumer report that it issues.

(B) Request that a consumer reporting agency remove derogatory information furnished to it after default.

(C) Furnish correct information to a consumer reporting agency.

(6) Any other relief that the court deems proper.

(b) In the case of a class action, a defendant that violates any provision of this title shall be liable for any statutory damages for each named plaintiff as provided in subparagraph (B) of paragraph (1) of subdivision (a). If the court finds that the defendant engaged in a pattern and practice of violating any provision of this title, the court may award additional damages to the class in an amount not to exceed the lesser of five hundred thousand dollars ($500,000) or 1 percent of the net worth of the defendant.

(c) (1) In the case of any successful cause of action under this section, the court shall award costs of the action, together with reasonable attorney’s fees as determined by the court.

(2) Reasonable attorney’s fees may be awarded to a prevailing defendant upon a finding by the court that the plaintiff’s prosecution of the cause of action was not in good faith.

(d) A private education lender or private education loan collector shall have no civil liability for damages under this section if the private education lender or private education loan collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error, and occurred notwithstanding the maintenance of procedures reasonably adopted to avoid any error.

(e) A cause of action to enforce any liability created by this title shall be brought within one year from the date of the discovery by the plaintiff of the last violation, or, in the event a default judgment is entered against the debtor, one year from the date the borrower first receives a writ, notice, or order under Division 1 (commencing with Section 680.010) or Division 2 (commencing with Section 695.010) of Title 9 of Part 2 of the Code of Civil Procedure, whichever is later.


text: Any waiver of the provisions of this title is contrary to public policy, and is void and unenforceable.


text: The provisions of this title are severable. If any provision of this title or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.


text: This title shall become operative on July 1, 2022.

history: (History: Added by Stats. 2021, Ch. 559, Sec. 1. (AB 424) Effective January 1, 2022. Operative July 1, 2022, by its own provisions.)


text: This title may be cited as the Fair Debt Settlement Practices Act.

history: (History: Added by Stats. 2021, Ch. 454, Sec. 1. (AB 1405) Effective January 1, 2022.)

title: 1.6C.17. Fair Debt Settlement Practices

chapter: 1. General Provisions

path: 1.6C.17. Fair Debt Settlement Practices > 1. General Provisions


text:
For purposes of this title:

(a) “Debt settlement provider” means a person who, for compensation and on behalf of a consumer, provides debt settlement services.

(b) “Debt settlement services” means any of the following:

(1) Providing advice, or offering to act or acting as an intermediary, including, but not limited to, offering debt negotiation, debt reduction, or debt relief services between a consumer and one or more of the consumer’s creditors, if the primary purpose of that advice or action is to obtain a settlement for less than the full amount of the debt.

(2) Advising, encouraging, or counseling a consumer to accumulate funds in an account for future payment of a reduced amount of debt to one or more of the consumer’s creditors.

(c) “Settlement account” means a depository account established and used for the purpose of holding funds of a consumer to be distributed to a creditor in the event of a settlement of a consumer’s debt with the creditor.

(d) “Consumer” means a person who is allegedly legally responsible for a debt.

(e) “Person” means a natural person or entity, whether a corporation, partnership, association, trust, limited liability company, cooperative, or other organization.

(f) “Creditor” means the person who originated the debt or is assigned, or has purchased for collection, a debt for which a consumer is allegedly legally responsible.

(g) “Debt” means money, whether in principal, interest, fees, or other charges, which is due or owing or alleged to be due or owing from a natural person to another person and incurred primarily for personal, family, or household purposes.

(h) “Payment processor” means a person who provides payment processing services.

(i) “Payment processing services” means accepting, maintaining, holding, or distributing funds, or facilitating the acceptance, maintenance, holding, or distribution of funds, on behalf of a consumer for the purpose of facilitating debt settlement services.

title: 1.6C.17. Fair Debt Settlement Practices


text:
(a) A debt settlement provider shall not engage in false, deceptive, or misleading acts or practices when providing debt settlement services. Without limiting the general application of the foregoing, an act or practice is false, deceptive, or misleading, in connection with providing debt settlement services, if the act or practice consists of any of the following:

(1) Making or permitting another entity to publicly make on behalf of the debt settlement provider, a statement or representation that is false, deceptive, or misleading.

(2) Posting directly, or indirectly causing to be posted, an online review or ranking on an internet website if the debt settlement provider, or its agent, provided anything of value in exchange for favorable treatment in that review or ranking.

(3) Omitting any material information.

(b) A debt settlement provider shall provide to the consumer the following disclosures along with an unsigned copy of the written contract proposed to be entered into between the debt settlement provider and the consumer no less than three calendar days prior to the execution of that contract by the consumer. A fully executed copy of the contract shall be delivered to the consumer by the debt settlement provider immediately after the debt settlement provider receives the contract.

(1) The contract shall be preceded by a disclosure that contains all of the following information in conspicuous boldface type that is larger than the typeface provided in the contract typeface:

(A) There is no guarantee that any particular debt or all of the consumer’s enrolled debts will be reduced, eliminated, or otherwise settled.

(B) The deposits made pursuant to the contract will not be distributed to the creditor until a settlement is obtained. This may take months to achieve.

(C) If the consumer stops paying any creditor, any of the following may occur:

(i) The creditors may still try to collect.

(ii) The creditors may sue.

(iii) If a creditor obtains a judgment against the consumer, the creditor may garnish the consumer’s wages or levy the consumer’s bank account or accounts, or both garnish the consumer’s wages and levy the consumer’s bank account or accounts.

(iv) The consumer’s credit score or credit rating may be negatively impacted.

(D) Failing to pay debts on time may adversely affect the consumer’s credit rating or credit scores.

(E) Specific results cannot be predicted or guaranteed, and the debt settlement provider cannot require a creditor to negotiate or settle a debt.

(F) A consumer may cancel the debt settlement contract at any time without any penalty.

(G) Debt settlement services may not be suitable for all individuals.

(H) Bankruptcy may provide an alternative to debt settlement.

(I) Canceled debt may be counted as income under federal tax law, and the consumer may have to pay income taxes on the amount of forgiven or reduced debt.

(J) Many sources of income may be protected from debt collection. Common sources of protected income include disability insurance benefits, life insurance benefits, military benefits, pension plans, retirement benefits, public assistance, social security benefits, supplemental security income (SSI), unemployment benefits, veterans benefits, workers compensation, and student aid. See form EJ-155 from the Judicial Council for a complete list.

(K) The number of months estimated to enter into settlement agreements that completely resolve all enrolled debts.

(L) All conditions that the consumer must satisfy before the debt settlement provider will make a settlement offer to a creditor.

(M) Whether the debt settlement provider pays or receives referral fees.

(2) Each contract between a consumer and debt settlement provider:

(A) Shall list each debt to be serviced, including, for each debt, the name of the creditor and the total amount of the debt. The total amount of the debt may be based on either a billing statement for the debt or information in the consumer’s consumer report, as that term is defined under the federal Fair Credit Reporting Act (15 U.S.C. Sec. 1681 et seq.). The billing statement or consumer report must have been issued within 30 calendar days of the date of the contract.

(B) Shall provide the estimated period of time it will take the consumer to accumulate in a settlement account the amount of money estimated to be required to settle all debts.

(C) Shall provide the amount of time necessary to achieve the represented results.

(D) Shall provide, in terms easily understood by the least sophisticated consumer, the method that the debt settlement provider will use to calculate the charges and fees for debt settlement services.

(E) Shall provide the name and mailing address of the debt settlement provider and of the consumer.

(F) Shall provide a telephone number at which the consumer may speak, during normal business hours, with a live representative of the debt settlement provider during normal business hours who is able to access information about the consumer’s account.

(G) Shall be provided to the consumer in English and in the language in which it was negotiated or in which the debt settlement services were offered, if that language is one of the languages set forth in Section 1632.

(H) Shall not require a compulsory agreement with any other party. A debt settlement provider may require that the consumer obtain a dedicated settlement account and provide a list of preferred vendors, however a payment processor who receives compensation from the consumer for payment processing services must supply its own contract to the consumer for engagement.

(I) Shall not be entered into by a consumer who is not already allegedly legally responsible for all the debt that will be enrolled in the debt settlement services. In the event multiple consumers engage in a single contract for debt settlement services, if any consumer is not proficient in English and speaks a language set forth in Section 1632, a translated copy of the disclosures and contract shall be provided to the consumer in that language and in a manner that complies with this subdivision.

(3) A debt settlement provider shall not communicate with any of a consumer’s creditors until five calendar days after full execution of a contract for debt settlement services.

(c) A debt settlement provider and a payment processor shall not engage in unfair, abusive, or deceptive acts or practices when providing debt settlement services or payment processing services. Without limiting the general application of the foregoing, in connection with providing debt settlement services and payment processing services, an act or practice is unfair, abusive, or deceptive if the act or practice consists of any of the following:

(1) For a debt settlement provider and payment processor, offering to lend money or extend credit to the consumer, or purchase an enrolled debt.

(2) For a debt settlement provider requesting or receiving payment of any fee or consideration for debt settlement services, unless and until all of the following occur:

(A) The debt settlement provider has renegotiated, settled, reduced, or otherwise altered the terms of at least one debt pursuant to a settlement agreement approved and executed by the consumer.

(B) The consumer has made at least one payment pursuant to that settlement agreement between the consumer and the creditor.

(C) To the extent that debts enrolled in a debt settlement service are negotiated, settled, or modified individually, the fee or consideration must either:

(i) Bear the same proportional relationship to the total fee for renegotiating, settling, reducing, or altering the terms of the entire debt balance as the individual debt amount bears to the entire debt amount. The individual debt amount and the entire debt amount are those owed at the time the debt was enrolled in the service.

(ii) Represent a percentage of the amount saved as a result of the renegotiation, settlement, reduction, or alteration. The percentage charged cannot change from one individual debt to another. The amount saved is the difference between the amount owed at the time the debt was enrolled in the service and the amount agreed pursuant to the settlement agreement between the consumer and the creditor to satisfy the debt.

(3) Beginning July 1, 2022, for a payment processor, facilitating the distribution of payment of any fee or consideration for debt settlement services before the requirements set forth in paragraph (2) have been met.

(4) For a payment processor, failing to distribute a statement of accounting to a consumer at least once a month while the consumer is engaged with the payment processor, as well as on or before the fifth business day after a consumer requests a statement of accounting.

(A) When an accounting is available to the consumer online, the payment processor must make prominent and ongoing the ability for a consumer to opt in to a paper accounting to be mailed to the consumer under the terms of this section.

(B) The statement of accounting must contain the following information to the extent applicable:

(i) A list of deposits made into, and withdrawals from, the consumer’s settlement account during the previous month.

(ii) The fees that the debt settlement provider has billed and collected in connection with each of the debts settled during the previous month.

(iii) The fees that the payment processor has billed and collected in connection with payment processing services during the previous month.

(iv) The amount of money that the consumer holds in the consumer’s settlement account.

(C) Within five business days of a consumer’s request, a payment processor shall provide a consolidated statement of accounting containing all of the following:

(i) A list of deposits made into, and withdrawals from, the consumer’s settlement account starting from the outset of the contract.

(ii) A list of fees that the debt settlement provider has billed and collected in connection with each of the debts settled starting from the outset of the contract.

(iii) A list of fees that the payment processor has billed and collected in connection with payment processing services starting from the outset of the contract.

(iv) The amount of money that the consumer holds in the consumer’s settlement account.

(5) For a debt settlement provider, failing to distribute a statement of accounting to a consumer at least once a month while the contract for debt settlement services is in effect, as well as on or before the fifth business day after a consumer requests a statement of accounting.

(A) When an accounting is available to the consumer online, the debt settlement provider must make prominent and ongoing the ability for a consumer to opt in to a paper accounting to be mailed to the consumer under the terms of this section.

(B) The statement of accounting must contain the following information to the extent applicable:

(i) The amounts, dates, and creditors associated with each settlement obtained by the debt settlement provider on behalf of the consumer.

(ii) The fees that the debt settlement provider has billed and collected in connection with each of the debts settled.

(iii) With respect to any debt settled by the debt settlement provider on behalf of the consumer, all of the following information:

(I) The total amount of money that the consumer paid or will pay to the creditor to settle the debt.

(II) The amount of the debt at the time the debt settlement provider and the consumer entered into the contract.

(III) The amount of the debt at the time the creditor agreed to settle the debt.

(IV) The amount of compensation that the debt settlement provider received, or may receive, to settle the debt.

(d) (1) A consumer may terminate a contract for debt settlement services at any time without a fee or penalty of any sort by notifying the debt settlement provider in writing, electronically, or orally.

(2) The notice described in paragraph (1) shall be deemed effective immediately upon being sent if made electronically, including via text message or orally. When the notice is sent via certified mail, notice shall be deemed effective upon receipt. When written notice is sent via noncertified mail, notice shall be deemed effective seven calendar days from the date of mailing.

(3) Upon effective notice of request for cancellation of the contract, the debt settlement provider shall do all of the following:

(A) Immediately cancel the contract.

(B) Immediately notify the payment processor that the consumer has canceled the debt settlement services and transmit to the payment processor the consumer’s instruction to close the settlement account and deliver the balance in the settlement account to the consumer.

(C) Provide, within three business days, a detailed accounting of any amounts received or expected to be received by the debt settlement provider from the consumer’s settlement account after the debt settlement provider received effective notice of request for cancellation. The detailed accounting shall include an explanation of how the amounts were calculated in accordance with the requirements of paragraph (2) of subdivision (c).

(D) Provide within three business days copies of all documents, notices, or other communications it has received from any creditor on behalf of the consumer.

(4) The items in subparagraphs (C) and (D) of paragraph (3) shall be sent by United States mail or by electronic means reasonably calculated to reach the consumer.

(5) Upon receipt of notice of cancellation of the contract from the consumer or debt settlement provider, the payment processor shall stop accumulating service fees, close the settlement account, and deliver to the consumer the balance in the settlement account within seven days. The payment processor shall provide, within 10 business days, a detailed accounting of the amount refunded and any amounts sent to the debt settlement provider after or upon the payment processor receiving notice of the cancellation of the contract.

(e) A debt settlement provider shall immediately forward the following notices to the consumer, either by United States mail or by electronic means reasonably calculated to reach the consumer:

(1) Any notice of a lawsuit on an enrolled debt from any person other than the consumer.

(2) Any settlement agreement that a debt settlement provider has negotiated on the consumer’s behalf.

title: 1.6C.17. Fair Debt Settlement Practices


text: This title applies to persons providing payment processing services, debt settlement services, and persons purporting to engage in debt settlement services.

title: 1.6C.17. Fair Debt Settlement Practices

path: 1.6C.17. Fair Debt Settlement Practices > 2. Application of the Fair Debt Settlement Practices Act


text:
This title does not apply to any of the following:

(a) Any person, or the person’s authorized agent, doing business under license and authority of the Commissioner of Financial Protection and Innovation under Divisions 1.1 (commencing with Section 1000), 2 (commencing with Section 5000), and 5 (commencing with Section 14000) of the Financial Code or under any law of this state or of the United States relating to banks or credit unions.

(b) Any nonprofit business organization that is certified as tax-exempt by the Internal Revenue Service and that does not receive compensation from the consumer for providing debt settlement services.

(c) Attorneys and law firms that meet all of the following criteria:

(1) The attorney or law firm does not charge for services regulated by this title.

(2) The fees and disbursements are not charges or costs shared, directly or indirectly, with a debt settlement provider.

(3) Any of the following is true:

(A) The attorney or law firm is retained by a consumer for the purpose of legal representation in consumer debt litigation.

(B) The attorney or law firm provides debt settlement services pursuant to representation by retainer for a debt collection matter that does not involve consumer debt.

(C) The attorney or law firm is retained by the consumer primarily for purposes other than the settlement of consumer debt.

(d) A merchant-owned credit or creditors association, or a member-owned, member-controlled, or member-directed association whose principal function is that of servicing the community as a reporting agency.

title: 1.6C.17. Fair Debt Settlement Practices

chapter: 2. Application of the Fair Debt Settlement Practices Act


text:
(a) A debt settlement provider and a payment processor shall comply with this title.

(b) A consumer may bring a cause of action against a debt settlement provider and a payment processor for violation of any provision of this title in order to recover or obtain any of the following:

(1) Damages in an amount equal to the sum of the following:

(A) Statutory damages in an amount to be determined by the court of no less than one thousand dollars ($1,000) and no more than five thousand dollars ($5,000) per violation of this title.

(B) Any actual damages sustained by the consumer as a result of the violation.

(2) Injunctive relief.

(3) Any other relief that the court deems proper.

(c) (1) In the case of any successful cause of action under this section, the court shall award costs of the action, together with reasonable attorney’s fees as determined by the court.

(2) Reasonable attorney’s fees may be awarded to a prevailing debt settlement provider and a prevailing payment processor upon a finding by the court that the consumer’s prosecution of the cause of action was not in good faith.

(d) A debt settlement provider or a prevailing payment processor shall have no civil liability for damages under this section if the debt settlement provider or a prevailing payment processor shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error, and occurred notwithstanding the maintenance of procedures reasonably adopted to avoid any error.

(e) A cause of action brought under this section shall be brought within four years of the latter of the following dates:

(1) The last payment by or on behalf of the consumer.

(2) The date on which the consumer discovered or reasonably should have discovered the facts giving rise to the consumer’s claim.

title: 1.6C.17. Fair Debt Settlement Practices

path: 1.6C.17. Fair Debt Settlement Practices > 3. Enforcement of the Fair Debt Settlement Practices Act


title: 1.6C.17. Fair Debt Settlement Practices

chapter: 3. Enforcement of the Fair Debt Settlement Practices Act


title: 1.6C.17. Fair Debt Settlement Practices


citation: CIV § 1789

text: The Legislature hereby finds and declares that it is in the public interest that consumers have comprehensive knowledge of services available through electronic commerce and to that end hereby enacts the Electronic Commerce Act of 1984.

history: (History: Added by Stats. 1984, Ch. 638, Sec. 1.)

title: 1.6D. ELECTRONIC COMMERCE

article: 1. General Provisions

path: 1.6D. ELECTRONIC COMMERCE > 1. General Provisions


text: This title may be cited as “The Electronic Commerce Act of 1984.”

title: 1.6D. ELECTRONIC COMMERCE

article: 1. General Provisions


text:
For the purposes of this title, the following terms have the meanings expressed in this section:

(a) “Electronic commercial service” or “service” means an electronic shopping system to conduct the purchase of goods and services via a telecommunications network, but does not mean conventional voice-only telephone service, one-way television or radio broadcasting, an electronic fund transfer system, or a service provided through an electronic terminal located at a place of business where the sale of goods or services sold through that service otherwise occurs.

(b) “Consumer” means a natural person who purchases goods or services using an electronic commercial service.

(c) “Provider of service” means a person who contracts with consumers to provide an electronic commercial service.

(d) “Goods or services” means tangible items or physical services provided to the consumer, or tickets or vouchers for such tangible items or physical services, but does not mean computerized data delivered to the consumer via a computer terminal or in printed form.

history: (History: Amended by Stats. 1987, Ch. 49, Sec. 1. Effective June 17, 1987.)

title: 1.6D. ELECTRONIC COMMERCE

article: 1. General Provisions


text:
The provider of an electronic commercial service shall provide to consumers with which it contracts to provide the service, at the time it contracts to provide the service and annually, on or before June 30 of each year thereafter, all of the following information:

(a) The name, address, and telephone number of the provider of service.

(b) Any charges to the consumer imposed by the provider for the use of the service.

(c) The procedures a consumer may follow in order to resolve a complaint regarding the service or to receive further information regarding use of the service, including the telephone number and address of the Complaint Assistance Unit of the Division of Consumer Services of the Department of Consumer Affairs.

history: (History: Amended by Stats. 1986, Ch. 508, Sec. 1.)

title: 1.6D. ELECTRONIC COMMERCE

article: 1. General Provisions


text:
(a) Any provider who knowingly and willfully violates any provision of this title is liable for a civil penalty not to exceed five thousand dollars ($5,000) which may be assessed and recovered in a civil action brought in the name of the people of the State of California by the Attorney General, by any district attorney or city attorney, or by a city prosecutor in any city or city and county having a full-time city prosecutor, in any court of competent jurisdiction.

(b) If the action is brought by the Attorney General, one-half of the penalty collected shall be paid to the treasurer of the county in which the judgment was entered, and one-half to the General Fund. If the action is brought by a district attorney, the penalty collected shall be paid to the treasurer of the county in which the judgment was entered. If the action is brought by a city attorney or city prosecutor, one-half of the penalty shall be paid to the treasurer of the city in which the judgment was entered, and one-half to the treasurer of the county in which the judgment was entered.

title: 1.6D. ELECTRONIC COMMERCE

article: 1. General Provisions


text: Nothing in this title shall be construed to limit the liability of a provider of service to a consumer for errors or omissions arising from the operation of an electronic commercial service.

title: 1.6D. ELECTRONIC COMMERCE

article: 1. General Provisions


text:
(a) This title does not apply where it is inconsistent with, or infringes upon, federal law or regulation.

(b) This title does not apply to the rights and obligations of a cardholder and a card issuer with respect to the use of a credit card arising from the purchase of goods or services conducted through an electronic commercial service. For the purpose of this subdivision, “cardholder,” “card issuer,” and “credit card” have the same meaning as those terms are given in the federal Fair Credit Billing Act (15 U.S.C. Sec. 1601 et seq.) and regulations adopted thereunder, or, if applicable, the Song-Beverly Credit Card Act of 1971 (Title 1.3 (commencing with Section 1747)).

(c) This title does not apply to the rights and obligations of a consumer and a financial institution with respect to any electronic fund transfer arising from purchase of goods or services conducted through an electronic commercial service. For the purposes of this subdivision, “consumer,” “financial institution,” and “electronic fund transfer” have the same meaning as those terms are given in the Electronic Fund Transfer Act (15 U.S.C. Sec. 1601 et seq.) and regulations adopted thereunder.

title: 1.6D. ELECTRONIC COMMERCE

article: 1. General Provisions


text: This title applies to transactions entered into on or after July 1, 1985.

title: 1.6D. ELECTRONIC COMMERCE

article: 1. General Provisions


text: Any waiver of the provisions of this title is contrary to public policy, and is void and unenforceable.

history: (History: Added by Stats. 2002, Ch. 815, Sec. 13. Effective January 1, 2003.)

title: 1.6D. ELECTRONIC COMMERCE

article: 1. General Provisions


text: This title shall be known and may be cited as the “Credit Services Act of 1984.”

history: (History: Added by Stats. 1984, Ch. 1177, Sec. 1.)

title: 1.6E. CREDIT SERVICES

path: 1.6E. CREDIT SERVICES


text:
The Legislature finds and declares that:

(a) The ability to obtain and use credit has become of great importance to consumers, who have a vital interest in establishing and maintaining their creditworthiness and credit standing. As a result, consumers who have experienced credit problems may seek assistance from credit services organizations which offer to obtain credit or improve the credit standing of those consumers.

Certain advertising and business practices of some credit services organizations have worked a financial hardship upon the people of this state, often those who are of limited economic means and inexperienced in credit matters. Credit services organizations have significant impact upon the economy and well-being of this state and its people.

(b) The purposes of this title are to provide prospective consumers of services of credit services organizations with the information necessary to make an intelligent decision regarding the purchase of those services and to protect the public from unfair or deceptive advertising and business practices.

(c) This title shall be construed liberally to achieve these purposes.

history: (History: Amended by Stats. 2022, Ch. 965, Sec. 1. (AB 2424) Effective January 1, 2023.)

title: 1.6E. CREDIT SERVICES


text:
As used in this title:

(a) “Communication” means the conveyance of any information regarding a debt, credit record, credit history, or credit rating, directly or indirectly, to any person by any means or through any medium.

(b) “Consumer” means any natural person who is solicited to purchase or who purchases the services of a credit services organization.

(c) “Consumer credit reporting agency” has the same meaning as in Section 1785.3.

(d) “Credit services organization” means a person who, with respect to the extension of credit by others, sells, provides, or performs, or represents that the person can or will sell, provide, or perform, any of the following services, in return for the payment of money or other valuable consideration:

(1) Improving a consumer’s credit record, history, or rating.

(2) Obtaining a loan or other extension of credit for a consumer.

(3) Providing advice or assistance to a consumer with regard to either paragraph (1) or (2).

(e) “Credit services organization” does not include any of the following:

(1) Any person holding a license to make loans or extensions of credit pursuant to the laws of this state or the United States who is subject to regulation and supervision with respect to the making of those loans or extensions of credit by an official or agency of this state or the United States and whose business is the making of those loans or extensions of credit.

(2) Any bank, as defined in Section 103 of the Financial Code, or any savings institution, as specified in subdivision (a) or (b) of Section 5102 of the Financial Code, whose deposits or accounts are eligible for insurance by the Federal Deposit Insurance Corporation.

(3) Any person licensed as a prorater by the Department of Financial Protection and Innovation when the person is acting within the course and scope of that license.

(4) Any person licensed as a real estate broker performing an act for which a real estate license is required under the Real Estate Law (Part 1 (commencing with Section 10000) of Division 4 of the Business and Professions Code) and who is acting within the course and scope of that license.

(5) Any attorney licensed to practice law in this state, where the attorney renders services within the course and scope of the practice of law, unless the attorney is an employee of, or otherwise directly affiliated with, a credit services organization. This includes attorneys that regularly engage in litigation in furtherance of assisting consumers with credit issues.

(6) Any broker-dealer registered with the Securities and Exchange Commission or the Commodity Futures Trading Commission where the broker-dealer is acting within the course and scope of the regulation.

(7) Any nonprofit organization described in Section 501(c)(3) of the Internal Revenue Code that, according to a final ruling or determination by the Internal Revenue Service, is both of the following:

(A) Exempt from taxation under Section 501(a) of the Internal Revenue Code.

(B) Not a private foundation as defined in Section 509 of the Internal Revenue Code.

An advance ruling or determination of tax-exempt or foundation status by the Internal Revenue Service does not meet the requirements of this paragraph.

(f) “Data furnisher” has the same meaning as the term “furnisher” is defined in Section 660.2 of Title 16 of the Code of Federal Regulations.

(g) “Extension of credit” means the right to defer payment of debt or to incur debt and defer its payment, offered or granted primarily for personal, family, or household purposes.

(h) “Person” includes an individual, corporation, partnership, joint venture, or any business entity.

history: (History: Amended by Stats. 2022, Ch. 965, Sec. 2. (AB 2424) Effective January 1, 2023.)

title: 1.6E. CREDIT SERVICES